What is an ex-cofounder entitled to?

First of all, my organization is really informal and there are no legal material or formal agreements and no one has money invested in it.

It probably doesn’t qualify as a startup, at least not yet. All 4 founders are full-time students with no idea what we’re doing. We hold an annual show for young artists to show their work, just for fun, and accept donations from the audience. No one is being paid, we all volunteer our time.

A cofounder who left after a mere two months, who contributed the basic goal of the show, much of the idea, the name, and the logo, is demanding money for “the rights” and some control over the show, threatening to sue us if we expand to another city. He remains our classmate and some of us would rather retain our personal links to him.

Is this something he can do? Does he deserve what he demands, and is there anything we can do to get him out of our hair? What kind of structure does our floppy entity need to be sustainable and sound?

Thank you so much to anyone who takes the time to help some very confused kids sort themselves out.

Comments

It sounds like he may have rights to some of the intellectual property developed and possibly some equity. Ideally, you would want to get an assignment and release for all IP and equity, etc. but this may be challenging to negotiate.

I left a start-up five years ago with no agreement in place. I can say years later, I am glad I decided to walk away without totally destroying the relationship with the other cofounders – though the relationship is not quite the same.

If you seek legal advice, a lawyer will tell you to preserve your rights/fight for equity, etc. I would say figure out what is important to you. Do you want to try and make this a profitable entity? Can you pivot or redesign the idea to omit the cofounder’s contribution?

My best advice is to figure out what you want the outcome to be, then if need be, hire an attorney to help you get there. For example, you may offer him a small royalty based on net income (after operating expenses, etc.) in exchange for an assignment and release. At this point, I personally see no reason to pay him if there is no positive net income. (None of this is intended as legal advice, but to help you start thinking about your options.)

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